If the Congress doesn’t act (the Senate has already done it and we’re just waiting on the House), the federal government will hit its debt limit by the end of February. The current limit is some walking-around money, specifically $12.4 trillion.

Now a lot of people say that’s no big deal, because the US economy is so big. They throw around figures of the debt-to-GDP ratio being something like 60 percent. So two things:

(1) Just check the math. The federal debt will be $12.4 trillion in a few weeks, and 2009 GDP was $14.3 trillion. So that means a debt-to-GDP ratio of 87%. I think what’s going on here is that the Federal Government & Friends own a lot of the outstanding Treasurys, so that the lower ~55% figure refers to the net debt (held by the public). For example, the Federal Reserve owns a lot of Treasury debt, and I think the way the books are cook– setup, the Social Security “trust fund” consists of a pile of IOUs issued by the Treasury.

(2) More important, why is the denominator the US economy? That implies that the federal government owns the whole economy, so that every penny earned in principle is income to the feds who could use it to service their debt. But that’s not what a household does. I don’t say, “Honey sure our credit debt is high in absolute numbers, but compared to the neighborhood’s total output this year, it’s nothing.” If we instead compare the US government’s debt to its “income” (i.e. tax revenue) in FY 2009, then we see the debt-to-“income” ratio is more like ($12.4 trillion / $2.1 trillion) = 590% of income.

Obama has compared the government to a household in these tough times. So how many of you could get fresh loans right now, if you were carrying a[n unsecured] debt load 5.9 times higher than your annual income?

UPDATE: The anal von Pepe points out that plenty of households have debt-to-income ratios higher than 5.9. I should have clarified, I meant unsecured debt. It’s not as if new creditors can repo the USS Kennedy if the Treasury defaults on its bonds. (Despite my sarcasm, I am acknowledging that von Pepe is right; my original post was unclear.)